The Credit Channel of Monetary Transmission in the US: Is It a Bank Lending Channel, a Balance Sheet Channel or Both or Neither?

We develop a theoretical framework that extends the Bernanke and Blinder model to incorporate imperfect substitution between internal and external finance of firms to study the operation of both the bank lending and the balance sheet channels of monetary transmission in the US. Our model is used to quantify the financial accelerator effects due to the operation of these channels. Empirically, we use multivariate cointegration techniques to identify the equilibrium relationships included in our model, and we provide evidence that only the balance sheet channel is operational for the period before and after the global financial crisis.